Margiotta v. District Director of Internal Revenue

• Decision Date: 02 July 1954
• Docket Number: No. 280,Docket 23103.,280
• Citation: 214 F.2d 518
• Parties: MARGIOTTA v. DISTRICT DIRECTOR OF INTERNAL REVENUE, BROOKLYN, N. Y. et al.
• Court: U.S. Court of Appeals — Second Circuit

214 F.2d 518 (1954)

MARGIOTTA v. DISTRICT DIRECTOR OF INTERNAL REVENUE, BROOKLYN, N. Y. et al.

No. 280, Docket 23103.

United States Court of Appeals Second Circuit.

Argued June 10, 1954.

Decided July 2, 1954.

Rehearing Denied August 3, 1954.

COPYRIGHT MATERIAL OMITTED

Edward Gettinger, New York City, and Harold M. Brown, Warsaw, N. Y., Samuel W. Sherman, New York City, for appellant.

Leonard P. Moore, U. S. Atty. for Eastern District of New York, Brooklyn, N. Y. (Elliott Kahaner, Brooklyn, N. Y., of counsel), for District Director of Internal Revenue.

Benjamin Cohen, New York City, for Murray Joseph, appellee.

Before CHASE, Chief Judge, and FRANK and HINCKS, Circuit Judges.

FRANK, Circuit Judge.

1. When the receiver moved to vacate the sale, that sale had already occurred, Joseph had paid the purchase price, and possession of the property had been transferred to him by the government. Accordingly, as the government was not then in possession, it could not properly object to the summary jurisdiction of the bankruptcy court.

The situation here is unlike that in Goggin v. Division of Labor Law Enforcement, of California, 336 U.S. 118, 69 S.Ct. 469, 93 L.Ed. 543. There the Collector had levied and was in possession before the taxpayer went into bankruptcy; after the bankruptcy, the Collector surrendered possession to taxpayer's bankruptcy-trustee for sale under an agreement that the government's lien was to attach to the proceeds of the sale. The Court held that, by this arrangement, the government had not lost the advantage of its possessory lien. But here the government had no agreement for retention of its rights as lienor when it gave possession to Joseph. Similarly, United States v. Sands, 2 Cir., 174 F.2d 384, 385, is not in point. There, before the taxpayer's bankruptcy, the Collector had levied on and taken possession of the property; the taxpayer's trustee in bankruptcy sold the property but, pursuant to a stipulation that the sale "should be without prejudice to * * * the claim of lien made by the collector."

As Joseph, in possession, interposed no objection to the summary jurisdiction, he must "be deemed to have consented to such jurisdiction" under Section 2, sub. a(7) — 11 U.S.C.A. § 11, sub. a(7) — of the Bankruptcy Act.³

2. The sale was invalid for failure to comply with the plain pre-sale requirements of 26 U.S.C. § 3693, which reads as follows:

"Proceedings on distraint. When distraint is made, as provided in section 3690 —

"(a) Account and notice to owner. The officer charged with the collection shall make or cause to be made an account of the goods or effects distrained, a copy of which, signed by the officer making such distraint, shall be left with the owner or possessor of such goods or effects, or at his dwelling or usual place of business, with some person of suitable age and discretion, if any such can be found, with a note of the sum demanded and the time and place of sale; and

"(b) Public notice. Forthwith cause a notification to be published in some newspaper within the county wherein said distraint is made, if a newspaper is published in said county, or to be publicly posted at the post office, if there be one within five miles nearest to the residence of the person whose property shall be distrained, and in not less than two other public places. Such notice shall specify the articles distrained, and the time and place for the sale thereof.

"(c) Time and place of sale. The time of sale shall not be less than ten nor more than twenty days from the date of such notification to the owner or possessor of the property and the publication or posting of such notice as provided in subsection (b) and the place proposed for the sale shall not be more than five miles distant from the place of making such distraint.

"(d) Adjournment of sale. Said sale may be adjourned from time to time by said officer, if he deems it advisable, but not for a time to exceed in all thirty days."

The notice published in the New York Herald Tribune did not comply with the statute. For (aside from the fact that that newspaper was not published "within the county wherein said distraint" was "made") the publication was not "forthwith" but on February 15, which was many days after the distraint on January 21. Nor was the time of sale, February 16, "not less than ten * * * days from * * * the publication * * * of such notice."⁴

The statute permits an alternative to newspaper publication, i. e., posting notices at the Post Office and not less than "two other public places." But here there was a fatal departure from this alternative requirement: The notice was posted at but one other "public" place. The premises of the bankrupt do not constitute a "public" place;⁵ it did not become so merely because the sale there took place.

3. Section 3695 of Title 26 provides that "the officer making the seizure shall proceed to sell such property at a public auction * * *" Section 3696 also provides that the officer shall sell "at public auction." Section 3697 provides: "In all cases of sale, as aforesaid, the certificate of such sale — (a) shall be prima facie evidence of the right of the officer to make such sale, and conclusive evidence of the regularity of his proceedings in making the sale". We think that the statement at the outset of Section 3697, "In all cases of sale, as aforesaid," means a sale preceded by notices in accordance with Section 3693.

Moreover, we think that "the right of the officer to make such sale" depends, among other things, upon his having given the public notices in accord with Section 3693, as a condition precedent to "making the sale," and that the certificate is therefore merely "prima facie" evidence that such notices had been given. See Williams v. Peyton's Lessee, 4 Wheat. 77, 4 L.Ed. 518, where the federal statute did not authorize the issuance of any certificate; the Court (per Marshall, Chief Justice) said that the officer's deed was not prima facie evidence that the Collector had posted notices of sale in four public places as then required by the statute. In Mutual Ben. Life Ins. Co. v. Tisdale, 91 U.S. 238, 239, 245, 23 L.Ed. 314, the Court cited Williams v. Peyton, supra, as dealing with lack of evidence of the officer's "right to sell." Here the prima facie evidence, supplied by the certificate of the officer's "right to make such sale," is amply rebutted by the undisputed record evidence of the inadequate notices.⁶

Joseph contends that the sufficiency of the notices of the proposed sale comes within the phrase concerning the "regularity of his the officer's proceedings in making the sale", and that consequently the certificate constitutes "conclusive evidence" that there were notices in compliance with Section 3693. We do not agree. Were this argument sound, then the officer by merely issuing a certificate would validate a sale when the officer had given no public notice whatever. We think Congress did not so intend. We think that "proceedings in making the sale" occur after the notification of an intended sale to prospective purchasers, and that those quoted words relate...